Globalization is the integrating of goods and capital markets between states – this has had really permanent impact on the universe ‘s economic system, particularly in the last few decennaries. ( Akisik, O. and Pfeiffer, R. 2009 ) . Hence the demand for International Accounting Standards ( IAS ) which is consistent and comparable has been deriving a batch of credence and prominence.
By and large Accepted Accounting Principles ( GAAP ) as such is used worldwide but it is moderated harmonizing to the demands of the several states ‘ accounting ordinances. However, in 2005, most of the UK listed companies were required to follow International Financial Reporting Standards ( IFRS ) in their amalgamate histories and now this fiscal describing criterion has become most widely accepted accounting criterions used in over more than 100 states.
The UK and Europe was at the head in the debut of International Financial Reporting Standards ( IFRS ) . IFRS had been implemented at the same time across many states as a common linguistic communication for concern and fiscal coverage. IFRS was regulated by the European Council of Ministers in 2002 which required all EU listed companies to fix their fiscal statements in conformity to the guidelines of the IFRS signifier 2005.
International Accounting Standards Boards ( IASB ) had adopted the IFRS in 2001 and it has many of the same criterions antecedently specified under International Accounting Standards ( IAS ) which were set to better the visibleness of the houses ‘ fundss.
A recent study conducted by International Corporate Governance Network ( ICGN ) about fiscal coverage and scrutinizing concluded that investors around the universe wanted a individual comprehensive set of planetary fiscal coverage criterions with 83 % of the investors sing this as a sort of harmonisation which will witness a positive consequence. ( www.deloitte.com, Aug 2010 )
Ian Griffiths quotes that “ Every company in the state is shirking its net incomes. Every set of published histories is based on books which have been gently cooked or wholly roasted. The figures which are fed twice a twelvemonth to the puting populace have all been changed in order to protect the guilty. It is the biggest con fast one since the Trojan Equus caballus. . . In fact this misrepresentation is all in absolutely good gustatory sensation. It is wholly legitimate. It is originative accounting ” . ( Amat O, Blake J, Dowds J, 1999 )
Comparison is one of the most of import factors in the execution of IFRS along with higher criterions of accounting. IFRS enables comparison of the houses ‘ fiscal studies and along with an addition in transparence and decrease in information dissymmetry and hence increasing the liquidness of the houses ‘ by increasing investings ( Chen, H. , Tang, Q. , Jiang Y. and Lin, Z. 2010 ) and doing the markets competitory and efficient.
Fiscal study provides investors with an penetration to the house ‘s fiscal wellness and public presentation. Access to accurate information can be achieved with higher criterions of accounting which help the investor to do an informed determination about their investing in the house.
IFRS is regarded as a move-forward towards the just rating of assets and liabilities. The angels of IFRS argue that it is the best signifier of accounting which non merely enables comparison and decrease in information dissymmetry but besides increases transparence ( Horton, J. , Serafeim, G. , and Serafeim, I. 2009 ) . But the critics of IFRS argue that the just value orientation of IFRS will make volatility in the for the fiscal coverage due to uses by the troughs ( Ball, R. 2006 ) .
Impact of acceptance of the IFRS on houses ‘ fundss varies from state to state. IFRS imposes really rigorous revelation demands on houses which are intended at bettering the visibleness of the house ‘s liabilities, revelation of pension-related duty, executive wage by unwraping stock option in the histories ( www.qfinance.com, Aug 2010 ) . IFRS has set criterions for the manner the houses account for their fixed assets by puting criterions for the appraisals of just value of assets. Amalgamations and acquisition schemes are besides affected well by the acceptance of IFRS.
Fiscal studies refering to a house can be used by different users for their ain demand. With the execution of IFRS, information dissymmetry would be reduced and hence communicating between the house and the users of its fiscal studies is made effectual and smooth. Effective communicating leads to take down bureau cost. Firms that have implemented IFRS benefit from higher grade of comparison, decreased dealing costs and greater investing from international investors. Investors are greatly benefited from the execution of IFRS which help them do informed determinations and anticipations of the future fiscal public presentation of the house and gives quality accounting patterns and transparence ( Iatridis G, 2010 ) . IFRS tends to cut down net incomes use and heighten stock market efficiency.
Academicians from Dundee University in the UK and University of Brescia in Italy lead a undertaking to analyze the fiscal studies of about 175 companies in the UK, Ireland and Italy ( www.icas.org.uk, Aug 2010 ) . The chief impact of the shift from GAAP to IFRS was increased reported net incomes and net equity decrease.
In the UK, reported net incomes were 51 % higher under IFRS than in UK GAAP
In the UK, Net Equity under IFRS was 35 % lower compared to the studies under national GAAP
UK is recognised as holding a extremely regarded accounting criterion in the Europe which is really much similar to the IFRS ( Iatridis G, 2010 ) . As such, the UK provided a really typical execution model unlike other EU states and as a consequence, the investors were able to segregate assorted accounting change in a individual clip frame which helped in extinguishing the possibility of any jumble from IFRS revelations. ( Horton J and Serafeim G, 2008 ) .
The survey aims at look intoing the impact of IFRS on house ‘s listed in the UK stock exchange by analysis the fiscal studies and placing new information disclosed and whether or non they have any impact of the stock monetary values of the house. And to find if the new criterions are more comparable and transparent and if they reflect the true future potency of the house. Financial and investing ratios are done to cipher the fiscal public presentation of the company based on the information collected. The survey is conducted on two companies Rio Tinto Plc and Anglo American Plc for the twelvemonth 2004 and 2005. Accounting information for the twelvemonth fiscal twelvemonth 2004 are available under UK GAAP and IFRS criterions and associate this information to the stock market monetary values of the portions to find which set of ratios reflect on the market rating.